Living life just a little bit differently
It’s actually better than it seems, from the title. I started with $35,000 in student loans when I first graduated in 2007. And I actually took out over $40,000 in loans. I was fortunate that several thousand was forgiven as part of several grants that I received! I made payments for a few years, and then did my second degree, during which time my student loan payments were halted. I still made payments when I had money of course, but there wasn’t an official payment plan while I was taking classes. Now that I’ve been out of school for 6 months and gainfully employed, it’s time to (officially) pay the loans again! The outstanding balance is about $27,000.
Right now, my minimum payments are at $315 per month. That’s a decent chunk of my budget. I’m on a 9 year repayment plan (I have no idea how they came up with 9 years…) and a variable interest rate of prime + 2.5%. That does not work with the Master Plan! If you do the math, it works out to paying $6,000 in interest over 9 years. What! Student loan interest is tax-deductible in Canada, but that doesn’t mean I want to pay more of it than necessary.
With any debt, the best thing you can do is make extra payments over and above your minimum. So, (1) my plan to is regularly pay $500 a month towards my student loan instead of taking out a trust deed (here are answers to any trust deed questions btw). That’s almost $200 extra that will go directly towards the principle, reducing the amount of interest I will have to pay and getting me closer to student loan freedom. If I stick with a $500 payment, I can have my loan repaid in approximately 5 years. Suddenly, that looks a lot better, right?
Not to me – 5 years puts me in my early thirties and that’s just a sad and terrifying thing to think about. So I need to be a little bit more aggressive.
Luckily, my new job pays overtime! (I am still baffled at having a software developer job that pays overtime…) (2) I am planning on putting 50% of my overtime earnings towards my student loans. If I conservatively estimate 10-15 hours of overtime a month, that’s an extra $5,000 per year, of which $2,500 will go towards my student loans. I suspect that in many months, the overtime hours will be much much more but I’m trying to estimate on the low side… That brings me down to about 3.5 years.
Finally, (3) I hope to put 25-50% of my yearly salary increases, freelance income, blog income, and tax refunds towards my student loans. Based on my current output and a modest 2% cost-of-living increase in salary each year, I should be able to put another $1,500-$3,000 towards my loans, bringing me down to 2.5 years. Depending on what fraction of this extra income I want to divert towards my student loans, I might even be able to get down to 2 years!
I admit, a lot of this involves counting unhatched eggs. But, I think that my estimates are conservative and my ability to generate side income is proven. With a bit of perseverance, I think that I will be able to pay off my student loans by the time I’m 30. Ish.
Finally, if you came to this article looking to see how I am playing off my debts, the best thing to do is to get some good solid advice. A good place to start if you aren’t going to shell out thousands for a financial planner or a financial coach is to get a copy of Dave Ramsey’s The Total Money Makeover. It sells for something like $15 on Amazon. This is a super cheap price considering that its helped millions of people discharge their debt. If you are serious about getting your obligations paid off, get a copy.
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It sounds like a good plan to me, if you’re able to make that extra income. I can relate to wanting them paid off. Having the interest to write off is great (as you said), but I’d rather have my money working for me as opposed to putting it at student loans.
I also just hate having the debt hanging over me – there’s so many better things I could do with that money!
Is paying off the student loan going to be your #1 priority for the next little while? I think it would be easiest if it was. If you stick with the higher end of your plans, you should be set. PS – I bet you’ll get a decent refund because switching jobs will likely mean double paying into CPP & EI, instead of topping out just once.
Now that we’ve bought the 2nd condo, it will be my #1 priority yes. The majority of extra money I make will be going to that debt. Grrrr…
I think you have an excellent repayment plan. Other than seeing your personal budget, I’m not sure I could make any suggestions. If you want to get it knocked out even more quickly consider cutting cable or decrease your eating out budget for awhile.
Maybe I’ll put up my budget in a future post. It’s hard to say for sure right now since I just changed jobs and haven’t gotten my first paycheque yet. I have a tentative budget but I won’t have exact numbers till I get paid.
I think you’re definitely on the right track! I started out with my student loans at $26,720 last November, now they’re down to around $13,000. They’ve disappeared faster than I ever thought possible and it’s because I’ve made them my number one priority. The biggest thing that has helped me pay them off faster is that I put all of my windfall money towards them. Good luck!
That’s amazing! I hope I have enough extra income to make it happen.
That is a great plan. Maybe you can find some freelance work in your field and make it go even faster, or develop blogging… also like Jordann says, put any unexpected money there, bdays, christmas, ask for money from your family instead of a gift you won’t use.
I do have some odds and ends freelance jobs but I’m finding the new job is keeping me busy! We’ll see, maybe once I am a bit more settled, I’ll have more time.
You did a lot of calculations to come up with that plan but it sounds like you will do quite well if you stick to it. Congrats and good luck!
Ehhh… they were hand-wavey calculations, but hopefully it’ll work out!
I think it’s great you have multiple plans because that way if something comes up you’ve got a plan for that! Good luck with the repayment!
Thanks! Yeah I’m pretty paranoid when it comes to having a backup plan. Might make a good post actually.
Even though you may be counting your eggs before they’ve hatched, at least you’ve got a good place to put them and your heart is in the right place. I say let the re-payment begin and down with that debt over the next two years!
Thanks for the encouragement! I like to aim high, hehe.
Good luck knocking out that debt. Think of all of that money you’ll be able to invest, or move around in your budget when that payment is gone. I personally hate payments of any kind and am very happy when they are gone.
I know! It’s so much money. Granted, it did get me through school but I will be much happier when I don’t have that monthly payment.
I’m all for paying early if you can — do it! But if you cant’, dont’ be sad if you’re in your early 30s and still repaying… you went to school again in there and got that repaymnt halted. That time adds up! So don’t be sad.
I’ll try 😉 I like having the lofty goal though – it’s a good motivator.
Sounds like you have a good repayment plan in place! I’m with Justin… think of all that spare cash you will have kicking about to invest how you like when it’s gone! 🙂
I know… *drools* I’m not sure if it is a good plan or a wishful plan yet, but here’s hoping!
Sounds like a great plan! Only other thing, if you’re paid bi-weekly you have 2 free pays/year you could throw on as well? Good job!
I thought about that – I often use my “extra” paycheques for investing, so I’m not sure if I want to put all/some of it towards the loan or not.
Nice! Even if everything doesn’t go exactly according to plan, it’s good to have that plan in place. And have the willingness to work your butt off and sacrifice to get there!
Thanks!!! I’m not too worried if things don’t go according to plan. I like to aim high. 😉
I love how aggressively you are attacking these student loans, CF! Like a ninja boss warrior magician! Err…something like that. 😉 What I mean to say is that you are doing awesome and I’m rooting for you!
I like the idea of ninja magicking my loans away.
Whatever I put in writing seems to happen, so I think by planning and making your goal public, it will happen. I love big debt payoff stories!
Thanks! I’m going to try to post updates, but I’m not too good at remembering to write those kinds of posts.
I worked as a financial aid director at a small private liberal arts college in the mid 1990’s. The college that I worked for was priced on the lower end compared to other private colleges but sometime students left with rather large loans. Some student loans are partially forgiveable (such as the Perkins Loan) if you agree to work in specific fields after college.
That is true. Here in Canada, I believe that loans are forgivable for professions such as medicine, education and nursing, provided you work in a rural area for a certain number of years.
What are your interest rates at on those loans?
Yikes, this comment fell through my radar. Sorry about that! I pay a floating rate of prime + 2.5%.
I am using a similar plan with help from my wife. We are used to living on one income so about half of her monthly pay goes towards our debts. So that plus the minimum payments cuts our repayment term dramatically. Within 5 years we should be completely debt free and I will be about 29!
Nice! I am jealous of your progress! I am pretty happy with our we are progressing. I just wish I had gone into a better paying field from the start. Ah well.
I know what you mean. I’m a first year teacher and I definitely wish it paid better.
I get sick to my stomach just thinking about student loan debt. I’m up to 90k and still have the remainder of this year until I complete my masters. I’ve even thought about staying in school beyond my masters to avoid the debt until I can land a solid job, but jobs are tough to come by and it wasn’t like that when I began going back to school. Debt sucks!
Yikes! 90k IS scary – what field are you going into? I assume that the 90k is a combination of your undergrad + masters tuition.
Ya the 90k includes both my undergrad and masters. I did my undergrad in Human Services but switched gears with my masters in management. I’ve worked as a counselor for years but its time for a break.
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